Iron ore heading for $70 by year's end

Iron ore has dropped to AU$76 per tonne in this first week of November. This is its lowest value in five years. Worse still; analysts are predicting it will get down to AU$70 per tonne by the end of the year.

While BHPB and Rio, who are able to ship iron ore for around AU$50 per tonne, are still in profit this is really starting to hurt the smaller iron ore operations. At AU$76 many of these smaller miners are either under water, or very close to being under water.

On top of the pain being suffered by the smaller miners, if iron ore does get down to AU$70 per tonne you can expect the big miners to go through another round of cut backs on top of the three rounds of cut backs so far this year.

Like it or not, Western Australia rides on the back of mining revenues. Many is the time I have heard of Perth, the capital of Western Australia, referred to as 'just a big mining town'. While Perth has more or less managed to absorb the impact of falling iron ore prices so far, although this is debatable, the outcome of iron ore dropping to AU$70 (or lower) is likely to be a camel's straw.

Over at 'The Intelligent Investor' there is an article titled "The Iron-ore led recession?" by Nathan Bell (click image to go there) where Nathan is concerned that iron ore at AU$70 will trigger a recession for Australia. Nathan notes that over the next 18 months between 200 and 300 million tonnes per annum of space iron ore capacity will emerge.

The article underlines that iron ore contributes a third of Australia's terms of trade.


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